EXHIBIT 10.3
LOCK UP AGREEMENT
This Lock Up Agreement (the "Agreement") is made and entered into as
of August 30, 2004, and sets forth certain terms and conditions pursuant to
which Choice One Communications Inc. ("CWON") and certain of its affiliates
(collectively with CWON, the "Proposed Debtors") will implement a restructuring
(the "Restructuring") on a consensual basis with (i) the undersigned lenders
(the "Consenting Senior Lenders") under that certain Third Amended and Restated
Credit Agreement dated as of September 13, 2002 (as amended, the "Credit
Agreement"), by and among CWON as guarantor, certain subsidiaries of CWON, as
borrowers, General Electric Capital Corporation, as administrative agent and
collateral agent (the "Senior Agent") and various lenders (collectively, the
"Senior Lenders"; and the claims of the Senior Lenders under or in connection
with the Credit Agreement are referred to herein as "Senior Lender Claims"); and
(ii) the undersigned lenders (the "Consenting Bridge Lenders"; and, together
with the Consenting Senior Lenders, the "Consenting Lenders") under that certain
Bridge Financing Agreement dated as of August 1, 2000 (as amended, the "Bridge
Loan Agreement") among CWON, Xxxxxx Xxxxxxx Senior Funding, Inc., as
administrative agent (the "Bridge Agent"), and various lenders (collectively,
the "Bridge Lenders"; and the claims of the Bridge Lenders in connection with
the Bridge Loan Agreement are referred to herein as the "Bridge Lender Claims").
CWON, the Consenting Senior Lenders and the Consenting Bridge Lenders are
referred to herein individually as a "Party", and collectively as the "Parties".
The loans made under the Credit Agreement are referred to herein as the "Senior
Loans". The loans made under the Bridge Loan Agreement are referred to herein as
the "Bridge Loans".
1. Chapter 11 Filing; Proposed Plan of Reorganization
It is anticipated that on or before September 30, 2004, the Proposed
Debtors will commence voluntary cases (the "Chapter 11 Cases") under chapter 11
of title 11 of the United States Code (the "Bankruptcy Code") in the United
States Bankruptcy Court for the Southern District of New York (the "Bankruptcy
Court"), which Chapter 11 Cases are intended to be implemented through the
proposed "prepackaged" or "pre-negotiated" plan of reorganization described
below. Attached hereto as Exhibit A is a term sheet (the "Term Sheet") that sets
forth the principal terms of the Restructuring.
The Parties agree that the Proposed Debtors will draft a plan of
reorganization (the "Proposed Plan") that effects the Restructuring consistent
with the Term Sheet, and a related disclosure statement (the "Disclosure
Statement"), and will circulate such drafts to the Consenting Lenders. On such
date (the "Document Approval Date") as the Proposed Plan, Disclosure Statement
and any exhibits thereto, including, without limitation, documents evidencing
proposed debtor-in-possession financing, the terms of a revolving exit
financing, the terms of new senior notes, warrants and corporate governance
documents (collectively, the "Plan Documents") are in form and substance
reasonably acceptable to the Senior Agent, the unofficial steering committee of
holders of Senior Loans (the "Senior Loan Steering Committee"), and the
unofficial steering committee of holders of Bridge Loans (the "Bridge Loan
Steering Committee"), the Proposed Debtors will (i) if the Document Approval
Date is on or before September 9, 2004, commence, within five business days
after such Document Approval Date, a solicitation of votes on the Proposed Plan
from holders of Senior Lender Claims and Bridge Loan Claims in accordance with
section 1126(b) of the Bankruptcy Code, or (ii) if the Document Approval Date is
before September 23, 2004, but no solicitation has been commenced by such date,
within five business days after confirmation that counterpart signature pages of
this Agreement have been executed by holders of at least 66 2/3% in dollar
amount and more than one-half in number of each of the Senior Loans and the
Bridge Loans, the Proposed Debtors will either (x) commence the Chapter 11 Cases
on a pre-negotiated basis, and file the Proposed Plan, Disclosure Statement and
related documents, all in form and substance reasonably satisfactory to the
Senior Agent, the Senior Loan Steering Committee and the Bridge Loan Steering
Committee, or (y) with the consent of the Senior Agent, the Senior Loan Steering
Committee and the Bridge Loan Steering Committee, commence a solicitation of
votes on the Proposed Plan in accordance with section 1126(b) of the Bankruptcy
Code; provided, that if by the Document Approval Date, executed signature pages
of this Agreement have been received by the holders of 66 2/3% in dollar amount
but not more than one-half in number of either the Senior Loans or Bridge Loans,
then the Proposed Debtors will, within five business days after receipt of the
written representation described in this section, commence the Chapter 11 Cases
on the pre-negotiated or pre-packaged basis as set forth in clause (x) or (y)
above, in any case, if the financial advisor to the Senior Lenders or the Bridge
Lenders, as applicable, shall have represented in writing its belief, after
reasonable due diligence, that after a vote taken holders of more than one-half
in number of the Senior Loans or Bridge Loans, as applicable, will vote to
accept the plan of reorganization under section 1126(c) of the Bankruptcy Code.
2. Forbearance
Upon receipt of counterpart pages of this Agreement executed by CWON
and by the holders of at least 66 2/3% in dollar amount of each of the Senior
Loans and the Bridge Loans, the Consenting Lenders agree to extend their
respective standstill and waiver agreements through and including September 30,
2004; provided, that such extended standstill and waiver agreements shall have
termination provisions similar to those set forth in this Agreement.
3. Holdings by Consenting Lenders
Each Consenting Lender represents that, as of the date hereof, such
Consenting Lender (i) either (A) is the sole legal and beneficial owner of the
principal amount of Senior Lender Claims or Bridge Lender Claims, as applicable,
set forth opposite its name on Schedule 1 hereto and all related claims, rights
and causes of action arising out of or in connection with or otherwise relating
to such claims (for each such Consenting Lender, the "Consenting Lender
Claims"), in each case free and clear of all claims, liens and encumbrances, or
(B) has investment or voting discretion with respect
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to its Consenting Lender Claims and has the power and authority to bind the
beneficial owner(s) of such Consenting Lender Claims to the terms of this
Agreement, (ii) has full power and authority to vote on and consent to matters
concerning such Consenting Lender Claims, and (iii) does not hold any claim or
interest against the Proposed Debtors other than the Consenting Lender Claims.
4. Transfer of Lender Claims
Each of the Consenting Lenders hereby agrees that, so long as its
agreement hereunder has not been terminated, it shall not sell, transfer, assign
or grant any participation in any of its Consenting Lender Claims or any option
thereon or any right or interest (voting or otherwise) therein, unless the
transferee thereof or participant therein agrees in writing for the benefit of
the other Parties hereto to be bound by all of the terms of this Agreement and
executes a counterpart signature page of this Agreement and the transferor
provides each of the Parties hereto with a copy thereof, in which event (a) each
Party shall be deemed to have acknowledged that its obligations to the
Consenting Lenders hereunder shall be deemed to constitute obligations in favor
of such transferee and (b) the transferee shall be a Party hereto and all
obligations of the transferor to the other Parties hereto shall be deemed to be
obligations of the transferee.
5. Agreement to Vote; Support for the Proposed Plan
Each of the Consenting Lenders agrees that, so long as its agreement
hereunder has not been terminated, and subject to the conditions that (i) the
Proposed Plan, Disclosure Statement and Plan Documents provide for the treatment
of Senior Lender Claims and Bridge Lender Claims consistent with the treatment
contemplated and set forth in the Term Sheet and the DIP Term Sheet (as defined
herein), and (ii) the Proposed Debtors fulfill their obligations as contemplated
herein, including conducting a solicitation of votes on the Proposed Plan,
filing the Chapter 11 Cases, filing the Proposed Plan and Disclosure Statement
and continuing to support the Proposed Plan in accordance with the treatment of
the Senior Lender Claims and the Bridge Lender Claims as set forth in the Term
Sheet and the DIP Term Sheet, it shall (a) vote in favor of the Proposed Plan,
and (b) support the Proposed Plan. Such support shall include the following:
each Consenting Lender (together with its affiliates, officers, directors,
stockholders, members, employees, partners, employees, representatives and
agents) shall not: (v) object to the Proposed Plan or to any efforts to obtain
acceptance of, and to confirm and implement, the Proposed Plan; (w) vote for,
consent to, support or participate in the formulation of any plan other than the
Proposed Plan; (x) solicit, encourage, entertain or engage in any inquiries,
discussions, offers or proposals, or enter into any agreements, relating to any
disposition of the Proposed Debtors or their assets out of the ordinary course
of business or any plan of reorganization or liquidation for the Proposed
Debtors other than the Proposed Plan or any amendment thereto, this Agreement
and any documents in support hereof; (y) encourage or support in any fashion any
person or entity to vote against the Proposed Plan or to take any other action
prohibited to the Consenting Lenders in this Agreement; or (z) take any other
action directly or indirectly for the purpose of delaying, preventing,
frustrating or impeding acceptance, confirmation or implementation of the
Proposed Plan.
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6. Termination of Obligations
Each Consenting Lender under this Agreement may terminate its
obligations under this Agreement by notice to counsel to the Proposed Debtors,
counsel to the Senior Agent, and counsel to the Bridge Loan Steering Committee,
in which case its agreement hereto shall terminate and be of no further force
and effect, if:
(a) any Party (including the Proposed Debtors, in furtherance of
their fiduciary duties) files a chapter 11 plan providing for treatment of the
Consenting Lender Claims that is inconsistent with the terms and conditions set
forth in the Term Sheet or the DIP Term Sheet in a manner that is adverse to any
of the Consenting Lenders; provided: that the right to terminate under this
clause (a) shall only inure to a Consenting Lender whose treatment under the
filed chapter 11 plan is inconsistent with the Term Sheet or DIP Term Sheet in
an adverse manner;
(b) on September 30, 2004, the Document Approval Date has not
occurred;
(c) on September 30, 2004, the Proposed Debtors have completed the
solicitation of votes on the Proposed Plan pursuant to section 1126(b) of the
Bankruptcy Code, in accordance with applicable nonbankruptcy law and consistent
with the Term Sheet and the DIP Term Sheet, but the Proposed Debtors have not
obtained the acceptance of the Proposed Plan by the requisite majorities under
section 1126(c) of the Bankruptcy Code of each of the classes of Senior Loans
and Bridge Loans;
(d) on September 30, 2004, the Parties have received counterpart
signatures of this Agreement executed by the requisite bankruptcy majorities of
each of the classes of Senior Lenders and Bridge Lenders in accordance with
section 1126(c) of the Bankruptcy Code, but the Proposed Debtors have not either
(x) commenced the Chapter 11 Cases on a pre-negotiated basis, including the
filing of the Proposed Plan, Disclosure Statement and related documents, all in
form and substance reasonably satisfactory to the Senior Agent, the Senior Loan
Steering Committee and the Bridge Loan Steering Committee, or (y) with the
written consent of the Senior Agent, the Senior Loan Steering Committee and the
Bridge Loan Steering Committee, commenced a solicitation of votes on the
Proposed Plan in accordance with section 1126(b) of the Bankruptcy Code;
(e) on September 30, 2004, the Parties have not received counterpart
signatures of this Agreement executed by the holders of 66 2/3% in dollar amount
and more than one-half in number of each of the Senior Loans and Bridge Loans;
provided, that if by such date, counterpart pages of this Agreement have been
executed by holders of at least 66 2/3% in dollar amount but not more than
one-half in number of either the class of Senior Loans or the class of Bridge
Loans (either such class, a "Non-Consenting Class"), then it shall not be a
termination event under this clause (e) if the financial advisor to the Senior
Lenders or the Bridge Lenders, as applicable, shall have represented in writing
its belief, after reasonable due diligence, that after a vote taken in the
Chapter 11 Cases the class of Senior Lenders or Bridge Lenders, as applicable,
will vote to accept
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the Proposed Plan under section 1126(c) of the Bankruptcy Code; and provided,
further, that it shall not be a termination event under this clause (e) for any
Consenting Lender of the Non-Consenting Class if CWON and the requisite
bankruptcy majorities under section 1126(c) if the Bankruptcy Code of the other
class determine to proceed with the Restructuring in accordance with the terms
of this Agreement and the Term Sheet and DIP Term Sheet;
(f) within five business days after the commencement of the Chapter
11 Cases, the Proposed Debtors have not obtained interim approval of a
debtor-in-possession financing facility (the "DIP Financing") consistent with
the terms set forth in the DIP Financing term sheet attached hereto as Exhibit B
(the "DIP Term Sheet"); and within 30 days after the commencement of the Chapter
11 Cases, the Proposed Debtors have not obtained final approval of the DIP
Financing consistent with the DIP Term Sheet;
(g) after filing, there shall be any modification to the Proposed
Plan or Disclosure Statement that is inconsistent with the terms and conditions
set forth in the Term Sheet or the DIP Term Sheet in a manner that is adverse to
any of the Consenting Lenders;
(h) in the event of non-performance in any material respect by any
Party hereto (the "Breaching Party"), five business days after the giving of
written notice of termination by any Party hereto that has not failed to
perform, in any material respect, any of its obligations hereunder, to each of
the other Parties hereto of the material non-performance of the Breaching Party
and such non-performance remains uncured at the conclusion of such five-business
day period;
(i) upon: (i) the dismissal of the Chapter 11 Cases; (ii) the
conversion of the Chapter 11 Cases to cases under chapter 7 of the Bankruptcy
Code; (iii) the appointment of a trustee or receiver; or (iv) the effective date
of the Proposed Plan; or
(j) upon the occurrence of an event of default that results in
acceleration under the DIP Financing.
No Party shall have any liability to the other or any other person as a result
of the termination of such Party's obligations hereunder in accordance with this
paragraph.
7. Good Faith Negotiation of Documents
Each party to this Agreement hereby further covenants and agrees to
negotiate the Plan Documents in good faith and, in any event, in all respects
consistent with the Term Sheet and the DIP Term Sheet.
8. Prior Negotiations
This Agreement, the Term Sheet and the DIP Term Sheet attached
hereto constitute the entire understanding of the parties with respect to the
subject matter hereof. No representations, oral or written, other than those set
forth herein and in the Term
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Sheet and the DIP Term Sheet, may be relied on by any party in connection with
the subject matter hereof.
9. No Due Diligence Condition
Any provision contained in the Term Sheet or the DIP Term Sheet to
the contrary notwithstanding, (a) the completion of due diligence (including,
without limitation, tax due diligence and due diligence on the benefits obtained
from contract rejections in the Chapter 11 Cases) with respect to the Proposed
Debtors is not a condition precedent to any Party's obligations and agreements
under this Agreement; and (b) no Party hereto may seek to condition or avoid the
performance of its obligations hereunder based on or subject to the completion
of any such due diligence.
10. Representations of CWON and the Subsidiaries
CWON, for itself and on behalf of its subsidiaries, hereby
represents and warrants to each Consenting Lender as follows:
(a) Corporate Power and Authority. It has all requisite corporate,
partnership or limited liability company power and authority to enter into this
Agreement and to carry out the transactions contemplated by, and perform its
obligations under, this Agreement.
(b) Authorization. The execution and delivery of this Agreement and
the performance of its obligations hereunder have been duly authorized by all
necessary corporate, partnership or limited liability company action on its
part.
(c) No Conflicts. The execution, delivery and performance by it of
this Agreement do not and shall not (i) violate any provision of law, rule or
regulation applicable to it or any of its subsidiaries or its certificate of
incorporation or bylaws or other organizational documents or those of any of its
subsidiaries or (ii) conflict with, result in a breach of or constitute (with
due notice or lapse of time or both) a default under any material contractual
obligation to which it or any of its subsidiaries is a party, other than as a
result of the commencement of the Chapter 11 Cases.
(d) Governmental Consents. The execution, delivery and performance
by it of this Agreement do not and shall not require any registration or filing
with, consent or approval of, or notice to, or other action to, with or by, any
federal, state or other governmental authority or regulatory body, other than
filings under the Securities Exchange Act of 1934, as amended, which have been
or will be made.
(e) Binding Obligation. Subject to the provisions of sections 1125
and 1126 of the Bankruptcy Code, this Agreement is the legally valid and binding
obligation of it, enforceable against it in accordance with its terms.
(f) Information True and Correct. The financial and other
information concerning it which it or its representatives have made available to
the Consenting Lenders (other than any projected financial information included
therein) was complete and correct in all material respects when delivered and
did not contain any untrue
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statement of a material fact or omit to state a material fact necessary in order
to make the statements therein not materially misleading in light of the
circumstances under which such statements were made, and the projected financial
information concerning it which it or its representatives made available to the
Consenting Lenders was prepared in good faith and on the basis of assumptions
which, in light of the circumstances under which they were made, were believed
by its management to be reasonable.
(g) No Litigation. There are no material actions, suits, claims,
proceedings, or investigations pending or, to its knowledge, threatened against
it, except those that have been publicly disclosed by CWON in the periodic or
current reports filed with the Securities and Exchange Commission by CWON
pursuant to the reporting requirements set forth in the Securities Exchange Act
of 1934, as amended.
11. Representations of the Consenting Lenders
Each of the Consenting Lenders represents and warrants, severally
but not jointly, to CWON and the other Consenting Lenders, as follows:
(a) Corporate Power and Authority. It has all requisite corporate,
partnership or limited liability company power and authority to enter into this
Agreement and to carry out the transactions contemplated by, and perform its
obligations under, this Agreement.
(b) Authorization. The execution and delivery of this Agreement and
the performance of its obligations hereunder have been duly authorized by all
necessary corporate, partnership or limited liability company action on its
part.
(c) No Conflicts. The execution, delivery and performance by it of
this Agreement do not and shall not (i) violate any provision of law, rule or
regulation applicable to it or any of its subsidiaries or its certificate of
incorporation or bylaws or other organizational documents or those of any of its
subsidiaries or (ii) conflict with, result in a breach of or constitute (with
due notice or lapse of time or both) a default under any material contractual
obligation to which it or any of its subsidiaries is a party.
(d) Governmental Consents. The execution, delivery and performance
by it of this Agreement do not and shall not require any registration or filing
with, consent or approval of, or notice to, or other action to, with or by, any
federal, state or other governmental authority or regulatory body.
(e) Binding Obligation. Subject to the provisions of sections 1125
and 1126 of the Bankruptcy Code, this Agreement is the legally valid and binding
obligation of it, enforceable against it in accordance with its terms.
12. Further Acquisition of Claims
This Agreement shall in no way be construed to preclude the
Consenting Lenders from acquiring additional claims against CWON or any of its
subsidiaries. However, any such additional claims so acquired shall
automatically be deemed to be Consenting Lender Claims subject to the terms of
this Agreement.
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13. No Oral Amendments
No modification or amendment of the terms of this Agreement shall be
valid unless such modification or amendment is in writing and has been signed by
each of the Parties.
14. Governing Law
This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York, without regard to such state's choice
of law provisions which would require the application of the law of any other
jurisdiction. By its execution and delivery of this Agreement, each of the
Parties hereby irrevocably and unconditionally agrees for itself that any legal
action, suit or proceeding against it with respect to any matter arising under
or arising out of or in connection with this Agreement or for recognition or
enforcement of any judgment rendered in any such action, suit or proceeding, may
be brought in the United States District Court for the Southern District of New
York, and by execution and delivery of this Agreement, each of the Parties
hereby irrevocably accepts and submits itself to the exclusive jurisdiction of
such court, generally and unconditionally, with respect to any such action, suit
or proceeding. Notwithstanding the foregoing consent to New York jurisdiction,
upon the commencement of the Chapter 11 Cases, each of the Parties hereto hereby
agrees that the Bankruptcy Court shall have exclusive jurisdiction of all
matters arising out of or in connection with this Agreement.
15. Specific Performance
It is understood and agreed by the Parties that money damages would
not be a sufficient remedy for any breach of this Agreement by any Party and
each non-breaching Party shall be entitled to specific performance and
injunctive or other equitable relief as a remedy of any such breach, including,
without limitation, an order of the Bankruptcy Court or other court of competent
jurisdiction requiring any Party to comply promptly with any of its obligations
hereunder.
16. Reasonable Best Efforts
The Senior Agent shall (a) exercise its reasonable best efforts to
obtain the consent of the requisite bankruptcy majorities of the class of Senior
Lenders to this Agreement, (b) notify the Proposed Debtors in writing if and
when such approvals have been received, (c) promptly notify the other Parties in
writing if and when any Senior Lender indicates its intention not to provide its
approval to this Agreement, and (d) promptly provide copies of such approvals to
the other Parties. Each of the Consenting Bridge Lenders shall (a) exercise its
reasonable best efforts to obtain the consent of the requisite bankruptcy
majorities of the class of Bridge Lenders to this Agreement, (b) notify (or
cause the notification of) the other Parties in writing if and when such
approvals have been received, (c) promptly notify (or cause the notification of)
the other Parties in writing if and when any Bridge Lender indicates its
intention not to provide its
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approval to this Agreement, and (d) promptly provide (or cause the provision of)
copies of such approvals to the other Parties.
17. Reservation of Rights
This Agreement is part of a proposed consensual Restructuring among
the Parties hereto. Except as expressly provided in this Agreement, nothing
herein is intended to, or does, in any manner waive, limit, impair or restrict
the ability any party to protect and preserve its rights, remedies and
interests, including, without limitation, its claims against the Proposed
Debtors. If the Restructuring contemplated herein and in the Term Sheet is not
consummated, or if this Agreement is terminated for any reason, the Parties
hereto fully reserve any and all of their rights.
18. Headings
The section headings of this Agreement are for convenience of
reference only and shall not, for any purpose, be deemed a part of this
Agreement.
19. Successors and Assigns, Several Obligations
This Agreement is intended to bind and inure to the benefit of the
Parties and their respective successors, permitted assigns, heirs, executors,
administrators and representatives. The invalidity or unenforceability at any
time of any provision hereof shall not affect or diminish in any way the
continuing validity and enforceability of the remaining provisions hereof. The
agreements, representations and obligations of the Consenting Lenders under this
Agreement are several and not joint in all respects. Any breach of this
Agreement by a Consenting Lender shall not result in liability for any other
non-breaching Consenting Lender.
20. Third-Party Beneficiaries
Unless expressly stated herein, this Agreement shall be solely for
the benefit of the Parties hereto and no other person or entity shall be a third
party beneficiary hereof.
21. Counterparts
This Agreement may be executed in several counterparts, each of
which shall be deemed to be an original, and all of which together shall be
deemed to be one and the same agreement. Execution copies of this agreement may
be delivered by facsimile which shall be deemed to be an original for the
purposes of this paragraph.
22. Consideration
It is hereby acknowledged by the Parties that no consideration shall
be due or paid to the Consenting Lenders in exchange for their support of the
Proposed Plan, in accordance with the terms and conditions of this Agreement,
other than the obligations imposed upon the Proposed Debtors pursuant to the
terms of this Agreement, including,
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without limitation, the Proposed Debtors' obligations to use reasonable best
efforts to confirm the Proposed Plan in accordance with the terms and conditions
of this Agreement.
23. Acknowledgement
This Agreement is not, and shall not be deemed to be, a solicitation
for consents to the Proposed Plan. Each Consenting Lender's acceptance of the
Proposed Plan shall not be solicited until it has received the Disclosure
Statement for the Proposed Plan.
24. Disclosure of Individual Consenting Lenders
Unless required by applicable law or regulation, including attaching this
Agreement, as executed, to the Disclosure Statement, and other than to the other
Parties hereto, the Proposed Debtors shall not disclose any Consenting Lender's
holdings of Senior Lender Claims or Bridge Lender Claims without the prior
written consent of such Consenting Lender; and if such announcement or
disclosure is so required by law or regulation (other than in connection with
the filing of this Agreement as part of an 8-K filing with the Securities and
Exchange Commission (an "8-K") or as an attachment to the Disclosure Statement),
the Proposed Debtors shall afford the Consenting lenders a reasonable
opportunity to review and comment upon any such announcement or disclosure prior
to making such announcement or disclosure. The foregoing shall not prohibit the
Proposed Debtors from disclosing the approximate aggregate holdings of Senior
Lender Claims or Bridge Lender Claims by the Consenting Lenders as a group. If
this Agreement, as executed, is attached to an 8-K or the Disclosure Statement,
the Debtors agree that only the aggregate amount of Bridge Lender Claims, but
not the individual amount held by any Consenting Bridge Lender, shall be
disclosed therein, subject, however, to the first sentence of this Section 24,
if such disclosure is required by applicable law or regulation.
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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to
be executed and delivered by their respective duly authorized officers, solely
in their respective capacity as officers of the undersigned and not in any other
capacity, as of the date first set forth above.
CHOICE ONE COMMUNICATIONS INC.
By: /s/ Xxxx Xxxxxxxxx
-----------------------------------------
Name: XXXX XXXXXXXXX
Title: CHIEF FINANCIAL OFFICER
SENIOR LENDERS
GENERAL ELECTRIC CAPITAL CORPORATION,
as Administrative Agent, Collateral Agent and
Syndication Agent under the Credit Agreement
and as a Senior Lender
By:/s/ Xxxxxxxxxxx X. Xxxxxxxx
--------------------------------------
Name: Xxxxxxxxxxx X. Xxxxxxxx
Title: Senior Vice President; Authorized Signatery
XXXXXX XXXXXXX SENIOR FUNDING, INC.,
as Documentation Agent under the Credit Agreement
and as a Senior Lender
By:/s/ Xxxxxx Xxxxx
--------------------------------------
Name: Xxxxxx Xxxxx
Title: Vice President
BANK OF AMERICA, N.A., as a Senior Lender
By:/s/ Xxxxx X. Sweet
--------------------------------------
Name: Xxxxx X. Sweet
Title: Assistant Vice President
BEAR XXXXXXX INVESTMENT PRODUCTS INC.,
as a Senior Lender
By:/s/ Xxxx X. XxXxxxxxx
--------------------------------------
Name: Xxxx X. XxXxxxxxx
Title: Vice President
XXXXXXX FINANCIAL SERVICES INTERNATIONAL, Inc.,
as a Senior Lender
By:/s/ Xxxx Xxxxxxxxx
--------------------------------------
Name: Xxxx Xxxxxxxxx
Title: Portfolio Manager
By:/s/ Xxxxx Xxxxxxxx
--------------------------------------
Name: Xxxxx Xxxxxxxx
Title: Controller
CREDIT SUISSE FIRST BOSTON INTERNATIONAL,
as a Senior Lender
By:/s/
----------------------------
Name:
Title:
DEUTSCHE BANK AND TRUST COMPANY AMERICAS, as a Senior Lender
By: /s/ Xxx Xxxxxxx
---------------------------
Name: Xxx Xxxxxxx
Title: Assistant Vice President
FIDELITY ADVISORS SERIES II: FIDELITY ADVISORS HIGH INCOME
ADVANTAGE (218), as a Senior Lender
By: /s/ Xxxx X. Xxxxxxxx
-----------------------------
Name: Xxxx X. Xxxxxxxx
Title: Assistant Vice Treasurer
Pension Investment Committee of
General Motors for General Motors Employees
Domestic Group Pension Trust, as a Senior Lender
By: Fidelity Management Trust Company,
as Investment Manager under Power of Attorney
By: /s/ Xxxx X. X'Xxxxxx
----------------------------
Name: Xxxx X. X'Xxxxxx
Title: Executive Vice President
XXXXXXX XXXXX CREDIT PARTNERS, L.P.,
as a Senior Lender
By: /s/ Xxxxx Xxxxxxx
---------------------------
Name: Xxxxx Xxxxxxx
Title: Authorized Signatory
XXXXXX CAPITAL, L.P.
P+S Capital Partners, LLC
By: /s/ Xxxx Xxxxxxx
----------------------------
Name: Xxxx Xxxxxxx
Title: CFO
LITESPEED MASTER FUND LTD
By:/s/ Xxxxx Xxxxxxxxx
------------------------------
Name: Xxxxx Xxxxxxxxx
Title: Managing Partner
XXXXXXX XXXXX CREDIT PRODUCTS, LLC, as a Senior Lender
By: /s/ Xxxxx Xxxx
------------------------------
Name: Xxxxx Xxxx
Title: Vice President
ORE HILL HUB FUND, LTD, as a Senior Lender
By: /s/ Xxxxxxxxx Xxxx
----------------------------
Name: Xxxxxxxxx Xxxx
Title:
QUANTUM PARTNERS LDC, as a Senior Lender
By: /s/ Xxxxxxx Belly
-----------------------------
Name: Xxxxxxx Belly
Title: Attorney-in-Fact
SATELLITE SENIOR INCOME FUND, LLC, as a Senior Lender
By: Satellite Asset Management L.P., its manage
By: /s/ Simon Raykhar
------------------------------
Name: Simon Raykhar
Title: General Counsel
XXXXXXX CAPITAL MANAGEMENT, XX XX, as a Senior Lender
By: S+E Partners, LP its: General Partner
By: Xxxxxxx, Inc its: General Partner
By: /s/ Xxxxx Xxxxxx
-------------------------------
Name: Xxxxx Xxxxxx
Title: President of Xxxxxxx, Inc.
STRATEGIC VALUE MASTER FUND, LTD, as a Senior Lender
By: Strategic Value Partners Inc.
its Investment
By: /s/ Xxxxxx Xxxxxx
--------------------------------
Name: Xxxxxx Xxxxxx
Title: President
TRIAGE CAPITAL MANAGEMENT, LP, as a Senior Lender
By: /s/ Xxxx X. Xxxxxxx
---------------------------
Name: Xxxx X. Xxxxxxx
Title: Partner
VARDE PARTNERS, INC., as a Senior Lender
By: /s/ Xxxxxx X. Xxxxx
---------------------------
Name: Xxxxxx X. Xxxxx
Title: Managing Partner
WACHOVIA BANK, N.A., as a Senior Lender
WAYLAND DISTRESSED OPPORTUNITIES FUND I-B, LLC.,
as a Senior Lender
By: Wayzata Investment Partners, LLC, its Manager
By: /s/ Xxxxxx X. Xxxxxxx
----------------------------
Name: Xxxxxx X. Xxxxxxx
Title: Authorized Signatory
WAYLAND DISTRESSED OPPORTUNITIES FUND I-C, LLC.,
as a Senior Lender
By: Wayzata Investment Partners, LLC, its Manager
By: /s/ Xxxxxx X. Xxxxxxx
----------------------------
Name: Xxxxxx X. Xxxxxxx
Title: Authorized Signatory
BRIDGE LENDERS
QUANTUM PARTNERS LDC, as a Bridge Lender
By: /s/ Xxxxxxx Belly
Name:
Title:
CREDIT SUISSE FIRST BOSTON
INTERNATIONAL, as a Bridge Lender
By: /s/ Xxxxx X. Xxxxxxxxxxx
---------------------------------------------
Name: Xxxxx X. Xxxxxxxxxxx
Title: Authorized Signatory
By: /s/ Vittorio Selaloja
---------------------------------------------
Title: Authorized Signatory
WACHOVIA INVESTORS, INC., as a Bridge Lender
By: /s/ Xxxxxx Xxxxx
---------------------------------------------
Name: Xxxxxx Xxxxx
Title: Authorized Signatory
Director
CHOICE ONE COMMUNICATIONS INC.
SUMMARY OF TERMS AND CONDITIONS
FOR POSSIBLE DEBTOR-IN-POSSESSION FINANCING
CONFIDENTIAL - FOR DISCUSSION PURPOSES ONLY; NOT A COMMITMENT TO LEND
This term sheet consists of a summary description of the material terms and
conditions of the debtor-in-possession credit facility described herein, and is
not intended to provide a comprehensive description of all of the terms and
conditions of such facility. Until such time as definitive written agreements
among the Borrowers, the DIP Agent and the DIP Lenders containing terms and
conditions consistent with the terms and conditions set forth herein and
otherwise in form and substance satisfactory to the DIP Agent and DIP Lenders
are fully executed and delivered, no negotiations, discussions, representations
or other communications of any kind shall be deemed to create any binding
agreements or offers capable of acceptance or any basis for detrimental
reliance. The DIP Agent and the DIP Lenders reserve their rights to terminate
discussions regarding the subject matter hereof at any time, in their sole
discretion, and without liability of any kind.
BORROWERS: Choice One Communications Inc. and each of its
subsidiaries, as debtors-in-possession subject to Chapter
11 cases (collectively, the "Borrowers" or the "Debtors").
Each Borrower would be jointly and severally liable to
repay any and all indebtedness incurred under the Facility.
Each Borrower will appoint one of the Borrowers as its
agent for administrative purposes under the Facility.
ADMINISTRATIVE
AGENT: General Electric Capital Corporation ("GE Capital") or one
or more of its affiliates (in such capacity, the "DIP
Agent").
FACILITY;
AVAILABILITY: Revolving debtor-in-possession credit facility (the
"Facility") of up to an overall maximum amount of
$20,000,000 (the "Maximum Amount"), including a swingline
subfacility of up to $_______________; provided, however,
that, (i) from and after the entry of an order of the
bankruptcy court acceptable in form and substance to the
DIP Agent and the Required DIP Lenders (the "Interim
Order"), and prior to the entry of the Final Order (as
defined below), the Maximum Amount shall be limited to
$____________ and (ii) the Maximum Amount shall be
permanently reduced from time to time pursuant to the
mandatory prepayment provisions described below.
Notwithstanding the foregoing, loans under the Facility
will only be available to the Borrowers from time to time
prior to the Maturity Date in an aggregate amount not to
exceed the lesser of:
a. an amount equal to the lesser of (i) the Maximum Amount
and (ii) an amount equal to the Borrowing Base minus the
amount of the Carve-Out (as defined below); and
b. a positive amount (if any) equal to (i) 110% of (x) the
sum of the weekly amounts of all projected disbursements of
the Borrowers and their subsidiaries, as set forth in a
budget approved on or prior to the Closing Date (as defined
below) by the DIP Agent, the Senior Lender
Steering Committee (as defined below) and the Bridge Loan
Steering Committee (as defined below) (the "Budget"), for
the period from the Closing Date through the last day of
the week in which the loan is requested (excluding
reasonable professional fees and expenses) minus (y) the
sum of the weekly amounts of all projected operating cash
receipts set forth in the Budget for such period minus (ii)
(A) aggregate amount of advances actually made under the
Facility to the Borrowers during such period (prior to
giving effect to any requested loan not yet made) minus (B)
the aggregate amount of reasonable professional fees and
expenses actually paid during such period; provided,
however, that the limitation described in this paragraph
(b) shall not be applicable with respect to any requested
loan the proceeds of which are actually applied to the
payment of reasonable professional fees and expenses. The
formula as set forth in this paragraph shall be applied,
with respect to each of the periods described herein, on a
cumulative, period to period basis. The Budget shall not be
modified or otherwise amended without (i) the consent of
the Required DIP Lenders and (ii) the consent of (a) the
Prepetition Senior Agent, the Senior Loan Steering
Committee and the Bridge Loan Steering Committee or (b) the
bankruptcy court.
"Borrowing Base" shall mean, as of any date, the sum of, in
each case less reserves established from time to time by
the DIP Agent in its reasonable credit judgment, up to 85%
of the Borrowers' eligible accounts. The DIP Agent will
retain the right from time to time to establish standards
of eligibility and reserves against availability in its
reasonable credit judgment, which reserves against
availability will take into account and be impacted by the
results of the pending audit of the collateral. Accounts
which are 90 days past original invoice date or 60 days
past due will be ineligible.
LENDERS: The lenders under the Facility (the "DIP Lenders") would
consist of GE Capital, Strategic Value Credit Opportunities
Master Fund, L.P., and Varde Partners, Inc. (or their
respective affiliates) (collectively, the "Senior Lender
Steering Committee"), and such other holders of the
Pre-Petition Obligations (as defined below) as may be
approved by the Senior Lender Steering Committee. Unless
otherwise approved by the Senior Lender Steering Committee,
each lender would participate in the Facility at equal
commitment amounts. Any such commitments would be provided,
if at all, pursuant to one or more definitive commitment
letters provided by such lenders in their sole and absolute
discretion.
CLOSING DATE: The later of the date on which the Debtors file
Chapter 11 petitions (the "Petition Date") and the date on
which the Interim Order is entered by the bankruptcy court,
it being anticipated that the Petition Date would occur on
or before September 30, 2004.
MATURITY: The Facility would mature and the commitments would
terminate on the earliest to occur (the "Maturity Date")
of: (i) six months from the Petition Date, (ii) thirty days
after the Petition Date if a final order from the
bankruptcy court approving the Facility in form and
substance
2
acceptable to the DIP Agent and the Required DIP Lenders
(the "Final Order" and, together with the Interim Order,
the "Financing Orders") has not been entered by that date,
(iii) the effective date of a plan of reorganization with
respect to the Debtors, and (iv) the occurrence and
continuation of an Event of Default under the definitive
Facility documents and a determination by the Required DIP
Lenders (as defined below) to terminate the commitments.
USE OF PROCEEDS: To pay interest, fees and expenses with respect to the
Facility, make adequate protection payments to the lenders
party to the pre-petition credit agreement ("Pre-Petition
Credit Agreement"), to pay regularly scheduled payments due
under the Swap Agreement (as defined below) (including the
deferred amount originally due August 9, 2004), to pay
reasonable professional fees and expenses incurred by the
unofficial committee of lenders (the "Bridge Loan Steering
Committee") party to the pre-petition bridge loan agreement
("Bridge Loan Agreement"), and to pay operating expenses
and other amounts for general corporate and ordinary course
purposes of the Company and its subsidiaries in accordance
with the Budget, including ongoing administrative expenses
associated with the Chapter 11 cases of the Debtors.
None of the proceeds may be used to challenge the validity,
perfection, priority, extent or enforceability of the
Facility or the Pre-Petition Loan Obligations (as defined
below), the obligations under the Bridge Loan Agreement
(the "Bridge Loan Obligations"), the Swap Obligations ((as
defined below) or the liens or security interests securing
the Facility, the Pre-Petition Loan Obligations, the Swap
Obligations or the Bridge Loan Obligations.
SECURITY; PRIORITY:
To secure all of the obligations of Debtors to the DIP
Agent and the DIP Lenders under the Facility, DIP Agent,
for the benefit of the DIP Agent and the DIP Lenders, would
receive, pursuant to Sections 364(c)(2), 364(c)(3) and
364(d)(1) of the Bankruptcy Code, the Financing Orders and
the definitive Facility documents, valid, enforceable and
fully perfected security interests in and liens and
mortgages upon all prepetition and postpetition assets of
the Debtors, including, without limitation, all capital
stock of their respective subsidiaries, all intercompany
notes held by them, and proceeds of all FCC and other
public utility licenses, in each case whether now existing
or hereafter acquired or arising (collectively, the "DIP
Collateral"), which liens would have the priority set forth
below. DIP Collateral would not include any proceeds from
avoidance actions recovered or avoided under Chapter 5 of
the Bankruptcy Code (collectively, "Avoidance Actions"),
except to the extent the Carve-Out (defined below) is
utilized.
The liens and security interests with respect to the
Debtors' property securing the Facility shall not be
subject to challenge and shall attach and become valid and
perfected upon entry of the Interim Order without the
requirement of any further action by DIP Agent or DIP
Lenders. All DIP Collateral will be free and clear of other
liens, claims and encumbrances,
3
except valid, perfected, enforceable and unavoidable liens
in existence as of the Petition Date, liens securing the
Pre-Petition Loan Obligations (as defined below), the Swap
Obligations (as defined below) and the Bridge Loan
Obligations, and other permitted liens and encumbrances
acceptable to DIP Agent and the DIP Lenders.
Subject to the Carve-Out, such liens securing the DIP
Obligations (a) would constitute first priority liens in
and to all DIP Collateral that is not subject to any valid,
perfected, enforceable and non-avoidable lien in existence
as of the Petition Date, pursuant to 11 U.S.C. Section
364(c)(2), (b) would prime and be senior to those liens
(the "Primed Liens"): (i) in favor of the pre-petition
agent (the "Pre-Petition Agent") with respect to
obligations under the Pre-Petition Credit Agreement (the
"Pre-Petition Loan Obligations") and the obligations (the
"Swap Obligations") under the pre-petition swap agreement
(the "Swap Agreement") among the Debtors and Wachovia Bank,
N.A. (formerly known as First Union National Bank)
("Wachovia"), and (ii) in favor of the agent (the "Bridge
Loan Agent") with respect to the Bridge Loan Obligations,
in each case pursuant to 11 U.S.C. Section 364(d)(1), (c)
would be senior to all Adequate Protection Liens (as
defined below), and (d) would be immediately junior in
priority to any and all valid, perfected, enforceable and
non-avoidable liens in existence as of the Petition Date
other than the Primed Liens (collectively, the "Non-Primed
Liens"), pursuant to 11 U.S.C. Section 364(c)(3).
All obligations of the Debtors under and with respect to
the Facility (the "DIP Obligations") would enjoy
superpriority administrative expense status under 11 U.S.C.
Section 364(c)(1) with priority over all other costs and
expenses of the kinds specified in, or ordered pursuant to,
Sections 105, 326, 330, 331, 503(b), 506(c), 507(a),
507(b), 726 or any other provisions of the Bankruptcy Code,
subject to the Carve-Out (as defined below). Such
superpriority status would be enjoyed with respect to any
proceeds of Avoidance Actions to the extent the Carve-Out
is utilized and the DIP Obligations would otherwise be pari
passu with other allowed administrative expenses with
respect to such proceeds.
CARVE-OUT: Prior to the Maturity Date, the Debtors shall pay their
administrative expenses, including, without limitation, the
professional fees and disbursements incurred by the Debtors
and any statutory committees appointed in the Chapter 11
cases, in full and in the ordinary course of the Debtors'
business, subject to the entry of an order of the
bankruptcy court, in form and substance reasonably
acceptable to the DIP Agent, the Senior Lender Steering
Committee and the Bridge Loan Steering Committee, allowing
for the provisional payment of such amounts. After the
Maturity Date, the claims and liens in the Debtors'
properties provided for hereunder, and the Primed Liens and
Non-Primed Liens, shall, only to the extent unencumbered
funds are not available to pay in full administrative
expenses, be subject to the payment of professional fees
and disbursements incurred by the Debtors and any statutory
committees appointed in the Chapter 11 cases, solely to the
extent
4
incurred in an aggregate amount not in excess of $1,000,000
plus any professional fees and disbursements described in
the first sentence of this paragraph which were incurred
prior to the Maturity Date and remain unpaid as of such
date and which are ultimately allowed by the bankruptcy
court, less the aggregate amount of retainers for
professional fees and disbursements that are unapplied as
of the Maturity Date (collectively, the "Carve-Out").
Notwithstanding the foregoing, no portion of the Carve-Out,
and no portion of any amounts approved for payment prior to
the Maturity Date, shall be utilized for the payment of
professional fees, disbursements, costs or expenses
incurred in connection with asserting or preparing for any
claims or causes of action against the Pre-Petition Agent,
the Bridge Loan Agent, the lenders under the Pre-Petition
Credit Agreement or party to the Swap Agreement
(collectively, the "Pre-Petition Lenders"), the lenders
under the Bridge Loan Agreement (the "Bridge Loan
Lenders"), the DIP Agent or the DIP Lenders, and/or
challenging or raising any defenses to the Pre-Petition
Obligations, the Swap Obligations, the Bridge Loan
Obligations, the loans or other obligations under the
Facility or the liens of the Pre-Petition Agent, the Bridge
Loan Agent, the Pre-Petition Lenders, the Bridge Loan
Lenders, the DIP Agent or the DIP Lenders.
ADEQUATE
PROTECTION: As adequate protection for the diminution in the value of
the Pre-Petition Agent's and the Pre-Petition Lenders'
collateral resulting from (i) the use by the Debtors of
such collateral and cash constituting proceeds of such
collateral, (ii) those liens granted to the DIP Lenders
which prime the Primed Liens and (iii) the imposition of
the automatic stay pursuant to 11 U.S.C. Section 362(a),
the Pre-Petition Agent, for the benefit of the Pre-Petition
Lenders, shall be granted, subject to the Carve-Out, (1)
replacement security interests in and liens and mortgages
upon all property of the Debtors and their estates, whether
now existing or hereafter acquired or arising, including
liens on Avoidance Actions to the extent the Carve-Out is
utilized ("Adequate Protection Liens") and (2)
superpriority administrative expense status under 11 U.S.C
Section 507(b), which priority claim shall be junior to the
superpriority claim under Section 364(c)(1) of the
Bankruptcy Code in favor of the DIP Lenders, provided that
as to proceeds of Avoidance Actions, such section 507(b)
claim shall enjoy 507(b) superpriority status (junior to
the Section 364(c)(1) priority in favor of the DIP Lenders)
to the extent the Carve-Out is utilized and will otherwise
enjoy a priority in respect of such Avoidance Actions which
is pari passu with other allowed administrative expenses
(the "Adequate Protection Priority Claim"). The Adequate
Protection Liens and the Adequate Protection Priority Claim
of the holders of the Primed Liens for the diminution in
the value of their collateral will be accorded the same
priority as held by such Primed Liens prior to the filing
of the chapter 11 cases, but shall be junior to the Liens
of the DIP Agent and the DIP Lenders.
As additional adequate protection for the benefit of the
Pre-Petition Lenders, (i) the Pre-Petition Lenders shall be
entitled to the payment of
5
ongoing interest (payable monthly) and fees, the payment on
the Closing Date of all accrued and unpaid or deferred
interest then owing with respect to the Pre-Petition Loan
Obligations (excluding deferred interest which is payable
in kind), and the payment of regularly scheduled amounts
due under the Swap Agreement (including such amounts which
were originally due and payable on August 9, 2004 and
extended to September 30, 2004), (ii) the Pre-Petition
Agent and the Senior Lender Steering Committee shall be
entitled to the payment of its costs and expenses and (iii)
the Debtors shall be prohibited from incurring additional
indebtedness having priority claims or liens equal or
senior in priority to the Facility or the Pre-Petition Loan
Obligations or the liens securing such obligations.
Notwithstanding anything herein to the contrary, the
adequate protection and other protections set forth in this
term sheet and afforded with respect to the Swap
Obligations and the liens of the Pre-Petition Agent
securing such obligations shall be subject to Wachovia
having agreed, pursuant to documentation reasonably
satisfactory to the DIP Agent, (i) to waive any right to
terminate the Swap Agreement as a result of the
commencement of the Chapter 11 cases or as part of any plan
of reorganization of the Debtors; and (ii) as part of any
plan of reorganization of the Debtors, to permit the Swap
Agreement and related Swap Obligations to "pass through" as
a post-petition agreement of the reorganized Debtors,
subject to the continued timely payment of the regularly
scheduled amounts due Wachovia thereunder and subject to
such plan providing for valid, effective and enforceable
post-confirmation liens and security interests securing the
Swap Obligations in substantially the same properties of
the Debtors by which such obligations are presently
secured, and having substantially the same lien priority
and liquidation preference over any other post-confirmation
funded indebtedness (other than any post-confirmation
revolving credit facility, with respect to which the Swap
Obligations would be junior) provided by or owing to the
Pre-Petition Agent and other Pre-Petition Lenders as the
Swap Obligations currently have over the Pre-Petition Loan
Obligations.
Subject to the last sentence of this paragraph, as adequate
protection for any diminution in the value of any interests
of the Bridge Loan Agents and the Bridge Loan Lenders in
the property of the Debtors' estate on the Petition Date
resulting from (i) the use by the Debtors of such property,
(ii) those liens granted to the DIP Lenders which prime the
Primed Liens and (iii) the imposition of the automatic stay
pursuant to 11 U.S.C. Section 362(a), the Bridge Loan
Agent, for the benefit of the Bridge Loan Lenders, shall be
granted, subject to the Carve-Out, (1) the Adequate
Protection Liens and (2) the Adequate Protection Priority
Claim. Such Adequate Protection Liens and Adequate
Protection Priority Claim of the Bridge Loan Agent and
Bridge Loan Lenders for any diminution in the value of any
interests of the Bridge Loan Agent and the Bridge Loan
Lenders in the property of the Debtors' estate on the
Petition Date will be accorded the same priority as held by
such Primed Liens prior to the
6
filing of the Chapter 11 cases, but shall be junior to the
Liens of the DIP Agent, the DIP Lenders, the Pre-Petition
Agent, the Pre-Petition Lenders and the replacement liens
of the Pre-Petition Agent and Pre-Petition Lenders.
The Bridge Loan Steering Committee shall be entitled to the
payment of its reasonable costs and expenses, and the
Debtors shall be prohibited from incurring additional
indebtedness having priority claims or liens equal or
senior in priority to the Bridge Loan Obligations or the
liens securing such obligations, except as provided herein.
The Financing Orders shall provide that the Debtors
acknowledge (a) the validity of the obligations owing to
the Pre-Petition Agent, the Pre-Petition Lenders, the
Bridge Loan Agent and the Bridge Loan Lenders, without
defense, offset or counterclaim of any kind, (b) the
validity, perfection and priority of the liens securing the
obligations owing to the Pre-Petition Agent, the
Pre-Petition Lenders, the Bridge Loan Agent and the Bridge
Loan Lenders, and that the Debtors waive any right to
challenge or contest such claims and liens and (c) that
they have no valid claims or causes of action against the
Pre-Petition Agent, any Pre-Petition Lenders, the Bridge
Loan Agent or any Bridge Loan Lender with respect to the
Pre-Petition Credit Agreement, the Swap Agreement, the
Bridge Loan Agreement or the related documents or
transactions.
The Final Order shall provide that any statutory committee
shall have 60 days from the date of the selection of
counsel to such committee to file any objection to the
claims or liens of the Pre-Petition Agent, the Pre-Petition
Lenders, the Bridge Loan Agent or the Bridge Loan Lenders,
or to commence any adversary proceeding or other action
against the Pre-Petition Agent, the Pre-Petition Lenders,
the Bridge Loan Agent or the Bridge Loan Lenders after
which date, if no such objection or adversary proceeding or
other action has been timely filed, the claims, liens and
security interests of the Pre-Petition Agent, the
Pre-Petition Lenders, the Bridge Loan Agent and the Bridge
Loan Lenders shall not be subject to challenge by any party
in interest as to validity, priority or otherwise and that
the Debtors and their estates shall have released any and
all claims or causes of action against the Pre-Petition
Agent, the Pre-Petition Lenders, the Bridge Loan Agent and
the Bridge Loan Lenders with respect to the Pre-Petition
Credit Agreement, the Swap Agreement, the Bridge Loan
Agreement, as applicable, or the related documents or
transactions.
REPAYMENT: The Facility shall be repaid in full on the Maturity Date.
PREPAYMENTS: The Facility shall be repaid (and the commitment thereunder
reduced) with 100% of the net cash proceeds of (i) any sale
or other disposition of any assets of one or more Borrowers
in excess of $500,000 in the aggregate following the
Closing Date, and (ii) subject to exceptions for repairs
and replacements consistent with the Budget or other
amounts to be approved by the DIP Agent and the Required
DIP Lenders, any
7
insurance and condemnation recoveries of any Borrower or
subsidiary of a Borrower.
The Borrowers shall have the right to voluntarily repay any
or all loans under the Facility at any time without premium
or penalty in minimum increments to be agreed upon and
subject to compensation for breakage of LIBOR loans. The
Borrowers shall additionally have the right to terminate
the commitments of the DIP Lenders in whole, but not in
part, upon payment in full of all outstandings under the
Facility and subject to notice requirements to be
determined.
CONDITIONS
PRECEDENT TO
CLOSING/INITIAL
LENDING: Customary for facilities of this nature, including, but not
limited to, credit documentation satisfactory to the
Administrative Agent, satisfactory review of all corporate
documentation and agreements, other legal due diligence and
the following:
- An Interim Order, in form and substance reasonably
satisfactory to the DIP Agent and the Required DIP
Lenders, of the bankruptcy court approving the Facility
shall have been entered and shall be in full force and
effect, which order shall be entered no later than the
5 days after the Petition Date.
- Funding of the Facility shall not violate any
requirement of law or cause any of the Borrowers or
their subsidiaries to breach any agreement that has not
been stayed by the Chapter 11 cases.
- Payment of the DIP Agent's fees and associated
transaction expenses, and the fees and expenses of
legal counsel and financial advisors to: (a) the Senior
Lender Steering Committee and the Pre-Petition DIP
Agent and (b) the Bridge Loan Steering Committee (which
condition may be satisfied with the proceeds of an
initial advance under the Facility on the Closing
Date).
- Limitations on payments in respect of prepetition
obligations prior to consummation of Debtors' plan of
reorganization and limitations on Debtors' ability to
grant adequate protection in favor of third parties not
otherwise provided herein.
- Establishment or continuation of cash management system
for Borrowers and their subsidiaries consistent with
the existing cash management arrangements in favor of
the Pre-Petition Agent and Pre-Petition Lenders in
connection with the Pre-Petition Credit Agreement.
- Except for the commencement of the Chapter 11 cases and
as may otherwise be disclosed in writing to the DIP
Lenders prior to the Closing Date pursuant to the
Facility Documentation, no material adverse change,
individually or in the aggregate, in the business,
financial or other condition of any Borrower or
Borrowers and its subsidiaries taken as a whole, or the
DIP Collateral or in the prospects or projections of
any Borrower or Borrowers and their subsidiaries taken
as a whole.
8
- No litigation commenced which has not been stayed by
the bankruptcy court and which, if successful, would
have a material adverse impact on any Borrower or
Borrowers and their subsidiaries taken as a whole,
their business or ability to repay the loans, or which
would challenge the transactions under consideration.
- Receipt of all necessary or appropriate (as determined
by the DIP Agent) third party governmental waivers,
approvals and consents.
- Completion, receipt and review by the DIP Agent of all
lien search reports and lien perfection documentation
as may be satisfactory to the DIP Agent with respect to
the DIP Collateral.
- Completion and receipt by the DIP Agent of all other
Documentation (as described below) in form and
substance satisfactory to the DIP Agent.
CONDITIONS
PRECEDENT TO
SUBSEQUENT
BORROWING: No material adverse change; no continuing matured or
unmatured event of default: no undisclosed litigation;
ongoing adherence to representations and warranties; the
Final Order approving the Financing by the bankruptcy court
shall have been entered and shall be in full force and
effect within 30 days following the Petition Date.
INTEREST RATE: On outstanding amounts under the Facility, at the
Borrowers' option (absent a default), the one month LIBOR
Rate or the Index Rate, plus, in each case, the interest
rate margin then in effect (the "Applicable Margin").
Applicable Margins for the Facility would be LIBOR + 3.00%
or Index Rate + 2.00%, at the Borrowers' option, for all
borrowings for each day on which the aggregate outstanding
principal balance of the loans is less than or equal to
$10MM. Applicable Margins for the Facility would be LIBOR +
4.00% or Index Rate + 3.00%, at the Borrowers' option, for
each day on which the aggregate outstanding principal
balance of the loans exceeds $10MM. Interest will be
calculated on the basis of actual days elapsed and a
360-day year in all cases, and will be payable monthly in
arrears in the case of Index Rate loans and at the end of
each one month interest period in the case of LIBOR Rate
loans.
As used herein:
"Index Rate" means the higher of (i) the prime rate per
annum as most recently reported in the "Money Rates" column
of The Wall Street Journal or (ii) the overnight Federal
funds rate per annum plus 50 basis points. Such rate will
be adjusted as of each change in the Index Rate.
"LIBOR" will be defined as the rate per annum equal to the
offered rate for deposits in U.S. dollars for one month
interest periods that appears on Telerate Page 3750 as of
11:00 a.m. (London time) two (2) Eurodollar business days
prior to the beginning of such interest period. Interest on
LIBOR loans will be adjusted at the end of each interest
period. LIBOR
9
breakage fees and borrowing mechanics will be set forth in
the final DIP Facility documents.
Upon the occurrence and during the continuance of any event
of default under the Facility and at the election of the
Required DIP Lenders, interest shall be payable on all
outstanding loans under the Facility on demand at 2.0%
above the then applicable rate.
YIELD PROTECTION: Customary LIBOR breakage mechanics would be included in the
definitive documentation with respect to the Facility,
including, without limitation, provisions as to capital
adequacy, illegality, changes in circumstances and
withholding taxes.
UPFRONT FEE: 2.00% of the Maximum Amount, payable on the Closing Date to
the DIP Agent, for the ratable benefit of the DIP Lenders.
UNUSED FACILITY FEE: 0.50% on the average unused Maximum Amount due and payable
quarterly in arrears to the DIP Agent, for the ratable
benefit of the DIP Lenders.
COLLATERAL
MONITORING FEE: $15,000 per calendar month, payable to the DIP Agent, for
its own account, on the Closing Date and on the first
business day of each month commencing thereafter.
DOCUMENTATION: The definitive Facility documents and Financing Orders
would be prepared by legal counsel to the DIP Agent and
would contain terms and provisions, including, without
limitation, representations and warranties, conditions
precedent, affirmative, negative and financial covenants,
indemnities, and events of default and remedies, in each
case, as are customary for commercial transactions in which
GE Capital has participated as an agent of the type
represented by the Facility and inclusive of those specific
provisions referred to below. Relevant documents, such as
Facility documents and other transaction documents,
subordination agreements, intercreditor and subordination
agreements, equity or stockholder agreements, incentive and
employment agreements, tax agreements, opinions of counsel
and other material agreements and instruments, to be
acceptable to the DIP Agent and the Required DIP Lenders.
The first-day orders and all orders of the bankruptcy
court, and all motions relating thereto, shall be in form
and substance reasonably acceptable to the DIP Agent and
the Required DIP Lenders.
10
REPRESENTATIONS
AND WARRANTIES: Usual and customary for facilities of this nature in which
GE Capital has acted as agent, including, but not limited
to, corporate existence; corporate and governmental
authorization; enforceability of credit documentation;
financial information; no material adverse changes;
compliance with laws, agreements and contractual
obligations (including environmental laws); enforceability
of the credit documentation; ownership of property;
creation and perfection of security interests; compliance
with ERISA; no material litigation; payment of taxes;
financial condition; and full disclosure.
AFFIRMATIVE
COVENANTS: Usual and customary for facilities of this nature in which
GE Capital has acted as agent, including, but not limited
to, receipt of monthly, quarterly and annual financial
information, borrowing base certificates, notification of
litigation, investigations and other adverse changes,
pleadings, motions, applications and other documents filed
by or on behalf of the Borrowers; payment and performance
of obligations; conduct of business; pledge of newly
acquired assets; maintenance of existence; maintenance of
property and liability insurance; maintenance of records
and accounts; access and inspection rights in favor of the
DIP Agent with respect to the Borrowers' and their
subsidiaries' property and books and records in each case
at the Borrowers' expense; compliance with laws (including
environmental laws); payment of taxes; and ERISA.
NEGATIVE
COVENANTS: Customary for facilities of this nature in which GE Capital
has acted as agent including, but not limited to,
restrictions and limitations on: additional indebtedness;
liens; guaranty obligations; restricted payments;
dividends; changes in business; mergers; sales of assets,
acquisitions; loans, investments, and capital expenditures;
transactions with affiliates; sale and leaseback
transactions; restrictive agreements; changes in line of
business and changes in fiscal year or accounting methods;
superpriority claims which are pari passu with or senior to
claims in respect of the Facility.
FINANCIAL COVENANTS: Capital expenditure limitations and other financial
covenants to be determined.
BUDGET COMPLIANCE
COVENANT: On a weekly basis for the period from the Petition Date
through the last day of the week of determination (except
with respect to reasonable professional fees and expenses),
actual disbursements must be no greater than 110% of the
sum of the aggregate projected weekly amounts for all
projected disbursements set forth in the Budget for such
period. Each week, the Borrowers shall provide the DIP
Lenders with line-by-line variance reports for the
preceding period and on a cumulative basis from the
Petition Date to the report date, comparing actual cash
receipts and disbursements to amounts projected in the
Budget, in form and scope reasonably acceptable to the DIP
Agent.
11
FINANCING ORDERS: The Financing Orders shall be in form and substance
acceptable in all respects to the DIP Agent and Required
DIP Lenders and shall include, without limitation,
provisions (i) modifying the automatic stay to the extent
necessary to permit or effectuate the terms of the
Financing Orders and the Documentation for the Facility,
including, without limitation, to permit the creation and
perfection of DIP Agent's liens on the DIP Collateral, (ii)
providing for the automatic vacation of such stay to permit
the enforcement of DIP Agent's and the DIP Lenders'
remedies under the Facility after reasonable notice to the
Pre-Petition Senior Agent and the Bridge Loan Agent, (iii)
prohibiting the assertion of claims arising under Section
506(c) of the U.S. Bankruptcy Code against the DIP Agent,
any DIP Lender, the Pre-Petition Agent, any Pre-Petition
Lender, the Bridge Loan Agent or any Bridge Loan Lender, or
the commencement of other actions adverse to the DIP Agent,
any DIP Lender, the Pre-Petition Agent, any Pre-Petition
Lender, the Bridge Loan Agent or any Bridge Loan Lender or
their respective rights and remedies under the Facility,
the Pre-Petition Credit Agreement, the Swap Agreement, the
Bridge Loan Agreement or any bankruptcy court order; (iv)
prohibiting the incurrence of debt with priority equal to
or greater than that of the DIP Agent, the DIP Lenders, the
Pre-Petition Agent, the Pre-Petition Lenders, the Bridge
Loan Agent or the Bridge Loan Lenders; (v) prohibiting any
granting or imposition of liens other than purchase money
priority liens and other liens acceptable to DIP Agent; and
(vi) prohibiting the Debtors' use of cash collateral other
than as expressly contemplated by the Financing Orders
prior to the indefeasible payment in full of the Debtors'
obligations under the Facility and termination of the DIP
Lenders' commitments thereunder.
EVENTS OF
DEFAULT: Customary for facilities of this nature in which GE Capital
has acted as agent including (with customary grace periods,
as applicable): nonpayment of principal when due;
nonpayment of interest, fees, or other amounts when due;
material inaccuracy of representations and warranties;
certain ERISA events; material judgments; invalidity of any
security document or security interest; a change of
management and/or control; or failure to observe any
negative or affirmative covenant. In addition:
- Any of the Chapter 11 cases of the Debtors is dismissed
or converted to Chapter 7 of the Bankruptcy Code or a
trustee or examiner is appointed in any of the
reorganization cases with enlarged powers to operate or
manage the financial affairs of any Debtor.
- The bankruptcy court enters a final order that in any
way modifies either Financing Order without consent of
the DIP Agent and the Required DIP Lenders (except in
the case of the replacement of the Interim Order with
the entry of the Final Order).
- A plan of reorganization is not confirmed by the
bankruptcy court within 120 days following the Petition
Date.
- Any Debtor petitions the bankruptcy court to obtain
additional financing pari passu or senior to the
Facility.
12
- The Final Order ceases to be in full force and effect.
- Any party other than the Debtors or the DIP Agent shall
file a proposed plan of reorganization, or the Debtors'
exclusive right to file such a plan has expired or been
terminated, in any case without the consent of the DIP
Agent and the Required DIP Lenders.
- All or substantially all of the property of any
Borrower is seized or otherwise appropriated.
- The entry of any order of the bankruptcy court granting
relief from or modifying the automatic stay to permit
one or more creditors to execute upon, enforce or
perfect a lien on the DIP Collateral or the collateral
securing the Pre-Petition Obligations in excess of
$500,000 in the aggregate.
- Commencement of any suit against the DIP Agent, DIP
Lenders, Pre-Petition Agent or Pre-Petition Lenders
that would in any way reduce, set off, or subordinate
the Facility or the Pre-Petition Obligations or
challenge the DIP Agent's or Pre-Petition Agent's
security interest in the DIP Collateral or collateral
securing the Pre-Petition Obligations, as the case may
be, and if any such suit is commenced by any party
other than the Borrowers, in the reasonable judgment of
the DIP Agent, such suit has a reasonable possibility
of success, and if successful, would be reasonably
likely to have a material adverse effect on the
Borrowers, their business or their ability to repay the
loans made under the Facility, the claims or liens of
the DIP Lenders under the Facility or the restructuring
of the indebtedness of the Borrowers in connection with
the plan of reorganization for the Borrowers.
RELIEF FROM STAY: The Interim Order and Final Order would provide, that, upon
the occurrence and during the continuation of an event of
default under the Facility, the automatic stay shall be
deemed lifted without any further action by the bankruptcy
court, (i) permitting the termination of the Debtors'
authority to use cash collateral, the acceleration of the
DIP Obligations, the termination of any commitments under
the Facility and the exercise of other post-default
remedies under the credit agreement and other loan
documents for the facility (other than those described in
clause (ii) below) and (ii) upon five (5) business days'
notice to Borrowers, counsel to any creditors' committee,
the United States Trustee, counsel to the Pre-Petition
Senior Agent, and counsel to the Bridge Loan Steering
Committee, permitting the DIP Agent and the DIP Lenders to
exercise any and all enforcement remedies with respect to
the DIP Collateral, including, without limitation, the
disposition of the DIP Collateral. The only issue that may
be contested in such regard is whether or not an event of
default shall have occurred.
COSTS AND EXPENSES;
INDEMNIFICATION: All reasonable out-of-pocket costs and expenses of the DIP
Agent and the Senior Lender Steering Committee (including,
without limitation, reasonable fees and disbursements of
counsel to the DIP Agent and counsel to the Senior Lender
Steering Committee, and the fees and
13
expenses of the financial advisors and internal and
third-party appraisers and consultants advising the DIP
Agent) shall be payable by the Borrowers on demand whether
or not the transactions contemplated hereby are
consummated. The Borrowers shall indemnify the DIP Agent,
the DIP Lenders and the Senior Lender Steering Committee
against any liability arising in connection with the
transactions contemplated hereby (other than in the case of
the gross negligence or willful misconduct of any
indemnified person).
ASSIGNMENTS AND
PARTICIPATIONS: The DIP Lenders would be allowed to assign and sell
participations in the Facility and unused commitments under
the Facility. In the case of partial assignments (other
than to another DIP Lender or an affiliate of a DIP
Lender), the minimum assignment amount would be $1,000,000.
The DIP Lenders would be allowed to sell participations in
their loans, provided that such participations would be in
a minimum amount of $1,000,000 and subject to customary
limitations on the granting of voting rights to
participants.
VOTING: Required DIP Lenders (defined to mean DIP Lenders holding
at least a majority of the commitments under the Facility)
except that (x) the following shall require the consent of
each affected DIP Lender: (i) an increase in the amount of
such DIP Lender's commitment under the Facility, (ii) the
reduction of interest rates and fees, (iii) the extension
of interest or fee payment dates, or (iv) forgiveness of
the principal amount, and (y) the following shall require
the consent of all the DIP Lenders: (1) modification to the
superpriority status of the Borrowers' obligations; (2) a
release of all or substantially all of the DIP Agent's
liens on and security interests in the DIP Collateral or
(3) a release of any Borrower from its obligations under
the Facility Documents (except in the case of a disposition
of such Borrower's equity interests to the extent permitted
or approved pursuant to the Facility Documents). The
Required DIP Lenders shall have the right to extend the
Maturity Date for up to 90 days; any further extension
shall require the unanimous approval of all DIP Lenders. If
DIP Lenders representing the Required DIP Lenders support
an amendment or waiver that requires unanimous DIP Lender
approval but is opposed by one or more other DIP Lenders,
then the Required DIP Lenders may require the disapproving
DIP Lenders to sell their interests in the DIP Facility to
one or more of the Required Lenders at par plus accrued
interest and fees.
GOVERNING LAW: The Bankruptcy Code and the State of New York.
MISCELLANEOUS: This summary of terms and conditions does not purport to
summarize all the conditions, covenants, representations,
warranties and other provisions, which would be contained
in definitive credit documentation for the Facility
contemplated hereby.
14
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CHOICE ONE COMMUNICATIONS INC.
TERMS OF PROPOSED RESTRUCTURING
This term sheet describes certain of the principal terms and conditions of a
proposed capital restructuring (the "Restructuring"; the date of consummation of
the Restructuring being the "Restructuring Date") of Choice One Communications
Inc. ("Holdings") and all of its operating subsidiaries ("Borrowers"; with
Holdings, the "Company"). This term sheet has been distributed for discussion
and settlement purposes only and is subject to the provisions of Rule 408 of the
Federal Rules of Evidence and any similar applicable state or other law or rule.
This term sheet is not an offer with respect to any securities. This term sheet
is non-binding and shall not constitute an admission by any person or entity and
the proposals contained herein are subject to, among other things, the
completion of due diligence (including, without limitation, tax due diligence
and diligence on the benefits to be obtained from contract rejections in a
Chapter 11 proceeding) and the negotiation, documentation and execution of
satisfactory definitive documentation.
Restructuring
Senior Loans The holders of Senior Loans will convert the
(Tranches A, B, C & principal amount thereof into an aggregate of (i)
D Terms Loans and $175,000,000 of Senior Secured Term Notes and (ii)
Revolving Loans) 90% of the common stock in the restructured Company
("Common Stock"), all to be distributed on the
Restructuring Date, and all subject to dilution as
described (and only as described) herein; provided
that:
(x) each individual holder of Senior Loans will be
entitled to receive at least its pro rata share of
Senior Secured Term Notes and Common Stock and may
elect to allocate more of its recoveries to Senior
Secured Term Notes or to Common Stock, as the case
may be, so long as the aggregate amounts so
allocated to all holders of Senior Loans are equal
to $175,000,000 of Senior Secured Term Notes and 90%
of the Common Stock, subject to proration for
over-elections. In all cases, final equity and debt
allocations to the holders of the Senior Loans that
are other than pro rata will be subject to the
approval of the Senior Loan Steering Committee; and
(y) any holder of Senior Loans that elects to
acquire at least its pro rata portion of the Senior
Secured Term Notes may elect to receive all of its
Common Stock in the form of a separate class of
Common Stock (the "Class B Common Stock"). The Class
B Common Stock will have limited voting rights, will
not be entitled to vote in the election of directors
and will be convertible into Common Stock, at the
option of the holder, at any time. Assumption:
$404,058,561 principal outstanding 6/30/04;
treatment of existing swap agreement, and rights of
holders of Term D Loans and Term C Deferred Interest
(including the potential right to receive only
Senior Secured Term Notes, and no Common Stock, and
the potential right to receive payment priority with
respect to the balance of the other Senior Secured
Term Notes similar to that in the existing Credit
Agreement), to be determined.
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Bridge Loans, Series A The holders of the Bridge Loans (including
Preferred Stock, capitalized interest) (the "Bridge Lenders") will
existing common convert all of the Bridge Loans into a right to
stock and warrants receive in the aggregate 10% of the Common Stock
plus 7-year warrants to purchase Common Stock as
described immediately below, all to be distributed
on the Restructuring Date and all subject to
dilution as described (and only as described)
herein. All existing Series A Preferred Stock,
existing common stock, existing options to purchase
common stock and warrants will be cancelled on the
Restructuring Date (the holders of the Series A
Preferred Stock, all existing common stock, options
and warrants being, collectively, the "Junior
Classes").
Warrants The Bridge Lenders will receive 7-year Warrants,
which Warrants shall be exercisable as follows:
Series A 7-year Warrants convertible into a number
of shares of the Common Stock that would equal 3% of
the Common Stock if exercised on the Restructuring
Date will be exercisable at a price per share equal
to 135% of the price per share established on the
Restructuring Date based on the reorganization
equity value of the Company; and
Series B 7-year Warrants convertible into a number
of shares of the Common Stock that would equal 10%
of the Common Stock if exercised on the
Restructuring Date will be exercisable at a price
equal to 200% of the price per share established on
the Restructuring Date based on the reorganization
equity value of the Company.
No other warrants will be issued to any other person
or entity, including the holders of the Senior
Loans, the Bridge Lenders and the Junior Classes,
and all Warrants (as well as all Common Stock
received by the holders of the Senior Loans and by
the holders of the Bridge Loans) shall be subject to
dilution for other equity issuances contemplated by
this term sheet, including for management/qualifying
employee restricted Common Stock and options and the
exercise of any Warrants.
If, at any time prior to the expiration of two years
after the issuance of the Warrants, a Black Scholes
Event shall occur, and as a result thereof the
Common Stock is converted into the right to:
(a) receive cash (and only cash), then the acquirer
or the Company shall purchase the Warrants on the
effective date of any such Black Scholes Event for
an amount in cash equal to the greater of:
(i) the per share amount of such
consideration reduced by the then
current exercise price of the Warrants;
or
(ii) the Black-Scholes Valuation of the
Warrants, assuming a risk free interest
rate of 4.37% and 50% stock volatility.
The term of the Warrants will be
adjusted to the remaining life from the
time the Black Scholes Event is
consummated; or
(b) receive securities or cash and securities, the
Warrants shall remain outstanding, the acquirer
shall assume the outstanding Warrants on the
effective date of any
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such Black Scholes Event and such Warrants shall be
exercisable by the holder of such Warrants for the
amount and kind of consideration the holder of such
Warrant would have received if such holder exercised
such Warrants immediately prior to the Black Scholes
Event.
"Black Scholes Event" shall mean (i) the acquisition
by any person or group, in a tender offer or series
of related tender offers made for all outstanding
Common Stock, of 50.1% or more of the Common Stock,
(ii) the consolidation, merger or combination of
Holdings with another person (other than a
subsidiary of Holdings) or (iii) a sale, lease or
other disposition of all or substantially all of the
assets of Holdings."
Management/ Qualifying Restricted Common Stock aggregating up to [1.5]%,
Employee Stock and Options and options to purchase Common Stock (subject to a
customary vesting schedule and other terms
(including strike prices, eligibility criteria and
performance targets) to be agreed upon by the
post-Restructuring Board of Directors (or an
appropriate subcommittee thereof) (the "New Board")
representing in the aggregate a number of shares of
the Common Stock that would total up to [4.5]% of
the Common Stock if exercised on the Restructuring
Date will be reserved for management and qualifying
employees of the Company, with the New Board making
determinations as to timing, vesting, grants,
eligibility and the like. These grants of restricted
Common Stock will be subject to dilution, including
by reason of the exercise of any Warrants.
Dilution For purposes of greater clarity, an example of how
dilution will affect the various equity stakeholders
under certain assumed conditions (and, by
extrapolation, to certain other conditions) has been
set forth on Annex I.
Reorganization Value $375,000,000 (plus an amount equal to the
outstanding principal amount of any new financing,
as described below).
DIP Financing
DIP Financing Up to $20,000,000 (the "DIP Financing") to be
provided on a priming basis pursuant to Section
364(d) of the Federal Bankruptcy Code. The permitted
uses of the proceeds of the DIP Financing shall be
pursuant to a budget prepared by the Company and
acceptable to the Administrative Agent and the
Senior Loan Steering Committee, and will include
payment of adequate protection and payments in
respect of the existing swap agreement.
Lenders All the DIP Financing would be agented by the
Administrative Agent and provided by members of the
Senior Loan Steering Committee (and/or their
affiliates) and such other holders of the Senior
Loans (and/or their affiliates) as may be approved
by the Senior Loan Steering Committee, all on terms
customary for priming debtor-in-possession
financings and otherwise reasonably satisfactory to
the Administrative Agent (including, without
limitation, the identity of the borrower or
borrowers and guarantors). Commitments will be
solicited for participation therein prior to the
Company's bankruptcy filing. There will be no
debtor-in-possession financing other
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than the DIP Financing.
The DIP Financing will have a first priority lien
and administrative priority over all of the assets
of the Company. Adequate protection for the holders
of Senior Loans shall consist of payment of any
outstanding prepetition interest (other than any
payment-in-kind interest), current interest during
the chapter 11 case, and professional fees and
expenses, as well as customary replacement liens and
non-monetary forms of adequate protection to be
agreed upon; provided that if the DIP Financing is
accelerated due to the occurrence of an event of
default, all rights of the holders of the Senior
Loans to request additional adequate protection, and
all rights of the Company and the holders of the
Bridge Loans to oppose any such request, are
reserved. To the extent permitted under applicable
law, the holders of the Bridge Loans shall receive
adequate protection in the form of current payment
of professional fees and expenses during the chapter
11 case, customary replacement junior liens and
other non-monetary forms of adequate protection to
be agreed upon, in each case junior to any adequate
protection granted to the holders of the Senior
Loans.
Exit Financing
Exit Financing Up to $25,000,000 revolving credit facility (the
"Exit Financing"), to refinance the DIP Financing
and provide for ongoing working capital requirements
of Holdings and its Subsidiaries.
Lenders The Administrative Agent will have the option to
agent the Exit Financing and the Holders of the
Senior Loans and the Bridge Lenders will be given
the opportunity to provide the Exit Financing, with
the Bridge Lenders being required to provide, as a
condition to the implementation of the terms of this
Term Sheet, binding commitments for $10,000,000 (but
not more than $10,000,000) of the Exit Financing, to
be provided at the option of the Senior Loan
Steering Committee, all on terms and conditions
reasonably satisfactory to the Administrative Agent.
The Exit Financing will have a first priority lien
on and security interest in all of the assets of the
Company and will be senior pursuant to a waterfall
to the Senior Secured Term Notes (including, without
limitation, all principal and interest with respect
to the Exit Financing, whether or not allowed in a
subsequent insolvency proceeding).
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Other Considerations
Board of Directors The Company will have 7 directors upon consummation
of the Restructuring, whose initial term will be
two years. The directors will include:
- 5 directors initially designated by
majority holders of Senior Loans
electing to hold voting Common Stock.
- 1 director who shall be the CEO (but
will not be the chairperson).
- 1 director initially designated by the
majority holders of Bridge Loans.
Any currently existing control provisions and Board
rights between the Company and any party will be
canceled as part of the Restructuring. Other
governance issues to be agreed.
Implementation/ Lockup To be implemented pursuant to a pre-packaged or
Agreement pre-negotiated plan of reorganization under Chapter
11 of the Bankruptcy Code.
Each of the Company, the holders of the Senior
Loans, and the Bridge Lenders would enter into
agreements (the "Lockup Agreements") that would,
among other things, (i) commit the signatories to
support the Restructuring, (ii) ensure that if any
signatory sells, assigns or otherwise conveys its
claims (a "Sale Transaction"), it would condition
said Sale Transaction upon the transferee's
assumption of the transferor's Lockup Agreement and
(iii) would not be subject to a due diligence out.
The support of the holders of the Senior Loans for
the transactions contemplated by this term sheet is
conditioned upon, among other things, (i) Lockup
Agreements being executed by the Company, (ii)
satisfaction of the conditions set forth in
"Minimum Acceptance" below and (iii) approval of
the Restructuring by the Company's board of
directors. With respect to the preceding clause
(ii), it is understood that (a) the number of
Bridge Loan holders signing Lockup Agreements may
not be more than one-half in number of the Bridge
Loan holders and (b) if the Bridge Loan Steering
Committee becomes aware that any Bridge Loan holder
opposes or will oppose the Restructuring, it shall
so notify the Senior Loan Steering Committee.
Releases The Restructuring would include a full discharge
and release of liability in favor of the Company,
the restructured Company, the holders of the Senior
Loans, the holders of the Bridge Loans and each of
their respective principals, employees, agents,
officers, directors, shareholders and professionals
from: (i) any and all claims and causes of action
arising prior to the effective date of the
Restructuring and (ii) any and all claims arising
from the actions taken or not taken in good faith
in connection with the Restructuring.
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Minimum Acceptance (i) If votes on a plan of reorganization
implementing the Restructuring are solicited
pursuant to section 1126(b) of the Bankruptcy Code
prior to the Company's commencement of a chapter 11
case, at least 66-2/3% in dollar amount and more
than one-half in number of each of the holders of
the existing Senior Loans and Bridge Loans voting
shall have voted in favor of such plan prior to the
commencement of the Chapter 11 case for the
Company, and (ii) if votes on a plan of
reorganization implementing the Restructuring are
to be solicited after the Company's commencement of
a Chapter 11 case, then prior to the commencement
of any Chapter 11 case for the Company, and in no
event later than [September 30], 2004, holders of
at least 66-2/3% in dollar amount and more than
one-half in number of each of the holders of the
existing Senior Loans and Bridge Loans shall have
executed Lock Up Agreements; provided, that if by
the date of commencement of any Chapter 11 case for
the Company, executed Lock Up Agreements have been
executed by 66 2/3% in dollar amount but not
one-half in number of the holders of either the
Senior Loans or the Bridge Loans, then Minimum
Acceptance will still be deemed to have been
obtained if the financial advisor to the Senior
Lenders or the Bridge Lenders, as applicable, shall
have represented in writing its belief, after
reasonable due diligence, that after a vote taken
in the Chapter 11 cases of the Company the class of
Senior Lenders or Bridge Lenders, as applicable,
will vote to accept the plan of reorganization
under section 1126(c) of the Bankruptcy Code. If
such Minimum Acceptance is not obtained or a
Chapter 11 plan implementing the Restructuring can
only be confirmed by a "cram down" of the class of
Bridge Loan holders, then the holders of the Senior
Loans will have the right, in their sole
discretion, to withdraw their support for the
Restructuring.
Definitive Documentation Subject to, among other things, definitive
documentation acceptable to the signatories to the
Lock-up Agreement.
Senior Secured Term Notes
Issuers Borrowers, jointly and severally
Guarantor Holdings
Initial Principal $175,000,000.
Amount
Ranking Senior indebtedness of Issuers.
Security First priority lien on and security interest in all
of the assets of the Company, but junior pursuant
to a waterfall to the Exit Financing.
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Interest LIBOR + (1)500, paid currently.
Maturity Date 6 years from the date of the consummation of
the restructuring.
Scheduled Year 1: 0.00%
Amortization
Year 2-6: TBD%
Covenants and Events Standard and customary provisions, including but
of Default without limitation the following financial
covenants: fixed charge ratio, total leverage
ratio, senior leverage ratio, interest coverage
ratio, minimum cash and maximum capital
expenditures.
General Provisions
Governing Law and Forum
The Senior Secured Term Notes, the Warrants, any
options and, to the extent applicable, any other
shares of the Company's capital stock issued in
connection with the Restructuring, and all related
documentation, other than certain security
documentation, will be governed by the laws of the
State of New York and, as applicable, Delaware.
Expenses
The Company will promptly pay all fees and expenses
of the Administrative Agent, the Senior Loan
Steering Committee and the Bridge Loan Steering
Committee, including, without limitation, the legal
and professional fees and costs of counsel to the
Administrative Agent, counsel to the Senior Loan
Steering Committee, financial advisors to the
Senior Loan Steering Committee, counsel to the
Bridge Loan Steering Committee and financial
advisors to the Bridge Loan Steering Committee, and
the Administrative Agent, the Senior Loan Steering
Committee and the Bridge Loan Steering Committee
shall be satisfied that appropriate provision has
been made therefor in all applicable documentation
(including, without limitation, the agreements
entered into in connection with the court order or
orders approving the DIP Financing, the use of cash
collateral and adequate protection of the holders
of the Senior Loans and the Bridge Loans to the
extent permitted by applicable law).
Registration Rights
Holders of Senior Loans that receive Common Stock
will have four demand registration rights with
respect to their Common Stock, subject to customary
limitations on minimum participation levels and
time elapsed since prior
(1) Or such higher rate to reflect a market rate
of interest (which increase would likely be
comprised of PIK interest based on leverage
levels as follows:
Leverage Ratio PIK Interest
>3.5 but <4.0X 50 bps
>=4.0 but <5.0X 100 bps
>=5.0 but <6.0X 150 bps
>=6.0X 200 bps
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registration, and unlimited customary piggyback
registration rights with respect to the underlying
Common Stock. Registration rights of such holders
shall have priority over any other registration
rights of holders of any of the Company's other
capital stock.
Holders of the Bridge Loans will have customary
piggyback registration rights with respect to their
Common Stock, subject to customary limitations and
priorities in favor of the demanding party.
Miscellaneous Customary other provisions for transactions of this
nature. To the extent Holdings is a private company
after the Restructuring Date, reasonable and
customary limitations on transfers of equity
interests will be included to comply with
securities laws.
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ANNEX I
Annex I - Sample Dilution Schedule / Capitalization Summary
ISSUED REORG TIER I TIER II
SHARES ADJUSTED STRIKE STRIKE
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EQUITY VALUE $ 200,000 $ 200,000 $ 270,000 $ 400,000
Premium 35.00% 100.00%
Employee Restricted Stock 1.50% NA NA
Employee Options 4.50% 0.00% 0.00%
Series A/B Warrants 3.00% 10.00%
EQUITY SPLIT
Banks - Primary Equity 90.00% 84.60% 82.06% 73.86%
Notes - Primary Equity 10.00% 9.40% 9.12% 8.21%
Employee Restricted Stock 0.00% 1.50% 1.46% 1.31%
Warrant A 0.00% 0.00% 3.00% 2.70%
Warrant B 0.00% 0.00% 0.00% 10.00%
Employee Options 0.00% 4.50% 4.37% 3.93%
---------- ----------- ---------- ------------
Total 100.00% 100.00% 100.00% 100.00%
SHARES
Banks - Primary Equity 9,000,000 9,000,000 9,000,000 9,000,000
Notes - Primary Equity 1,000,000 1,000,000 1,000,000 1,000,000
Employee Restricted Stock 0 159,574 159,574 159,574
Series A Warrants 0 0 329,020 329,020
Series B Warrants 0 0 0 1,218,591
Employee Options 0 478,723 478,723 478,723
---------- ----------- ---------- ------------
Total 10,000,000 10,638,298 10,967,317 12,185,908
NOTES:
(1) For illustrative purposes: Assumes management strike prices at
reorganization value.
(2) Primary share count of 10M set for purposes of calculation only.
(3) Total management package consisting of 1.5% Restricted Stock presented for
illustrative purposes only.
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